Foundry pricing, spending cutbacks impact worldwide CapEx

SAN JOSE, Calif.  Price competition and spending cutbacks among the leading silicon foundries have prompted an investment banking firm on Friday (Oct. 29) to lower its forecast for worldwide capital expenditures in 2004 and 2005.

Cristina Osmena, managing director of Jefferies & Company Inc. (New York), now forecasts worldwide capital spending of $44 billion in 2004, up 50 percent over 2003, and $41.7 billion in 2005, down 5 percent from this year's levels. Osmena had expected 51 percent growth in 2004 and minus 1 percent in 2005.

"We are adjusting our worldwide [capital spending] forecast to reflect the spending guidelines provided by TSMC ($2.4 billion in 2004, similar in 2005), UMC ($2.15 billion in 2004, about $1.5 billion in 2005) and SMIC (about $2 billion in 2004, about $1 billion in 2005)," she said in a report.

This week, the top four semiconductor foundries  TSMC, UMC, Chartered Semiconductor and SMIC  reported third quarter results.

"While results were largely in-line to better in the third quarter, fourth quarter guidance across the sector called for declining revenues and significantly lower utilization rates  with the exception of SMIC," she said.

TSMC's utilization is expected to decline from 103 percent in Q3 to about 85 percent in Q4. UMC's utilization is dropping from 94 percent in Q3 to about 70 percent in Q4, while Chartered's capacity utilization was 89 percent in Q3 and is expected to drop to about 62 percent in Q4.

Due to its use of memory wafers to fill capacity, SMIC's Q4 utilization is guided to be in the mid-to-high 90-percent range, slightly down from 99 percent in Q3, according to the analyst.

"In an interesting contrast to the top two players, SMIC guided for lower ASPs in Q4 and higher shipments due to a mix shift to mature technologies and memory wafers," she said. "TSMC and UMC guided midweek to flat ASPs in Q4 and lower shipments, claiming that leading edge technology demand remains strong while the deterioration in business is coming from the trailing edge. Chartered is also calling for improved 0.13-micron revenues in Q4 but lower total revenues (-32 percent) due to weakness at the 0.18- and 0.25-micron nodes."

Wafer pricing also played a factor in the marketplace. "While demand has held in at the leading edge for TSMC and UMC, we would not assume that a downturn is restricted only to trailing edge technologies," she said. "Trailing technologies typically fall off first at the onset of a downturn and we believe this falloff is exacerbated by price competition from SMIC. We believe this division (SMIC vs. all the rest) in the foundry market may have also contributed to the sharp falloff in utilization."